[Edaily Reporter kyoungeun kim ] With the third amendment to the Commercial Act making the cancellation of treasury stock mandatory, and as stricter regulations on dual listings and the introduction of fair value for mergers take effect, analysts have noted that CJ Corp.(001040)is emerging as a beneficiary of corporate restructuring.
Lee Sang-heon, an analyst at iM Securities, made this statement on the 29th and maintained a “Buy” investment rating and a target price of 215,000 won for CJ Corp. He believes the stock has upside potential of 43.3% relative to its current price.
The third amendment to the Commercial Act, which mandates the cancellation of treasury stock, was promulgated and took effect simultaneously on March 6 of this year. The analyst predicted, “As we enter an era of mandatory cancellation in principle due to the third amendment to the Commercial Act, it will be inevitable that a significant portion of not only CJ Corp.’s 7.3% treasury stock but also CJ Olive Young’s 22.6% treasury stock will be canceled within one year and six months from the effective date.”
The analyst continued, “CJ Olive Young has laid the groundwork for a merger with CJ Corp. by repurchasing all external shares,” adding, “In an environment where the cancellation of treasury shares is becoming a reality, corporate restructuring is likely to take place as CJ Olive Young pursues a merger with CJ Corp. rather than seeking a separate listing due to dual-listing regulations.”
Changes to the merger valuation criteria are also expected to work in CJ Corp.’s favor. Under the current Capital Markets Act, when a listed company merges with an affiliate, the merger price is calculated based on a formula using market price. This has led to criticism that companies intentionally lower their stock prices at the time of a merger to benefit the owner’s family or to facilitate a low-value merger.
The analyst emphasized, “The proposed amendment to the Capital Markets Act will serve as an opportunity to resolve uncertainties regarding CJ Corp.’s merger consideration during the future merger process between CJ Corp. and CJ Olive Young,” adding, “The introduction of a dual-listing ban will alleviate concerns about conflicts of interest among shareholders, which will structurally lead to a reduction in the discount rate and result in a re-rating of the valuation.”
He added, “Since CJ Corp. Olive Young’s corporate value—which is currently being enhanced through expanded dividends driven by earnings growth—can be fully reflected after the merger, CJ Corp.’s valuation is likely to increase.”